The High Level Seminar on Customs Co-operation and Controls at the External Borders of the EU

Budapest, 14 April 2011

Chairman, Ladies and Gentlemen,

Let me first of all congratulate the Hungarian presidency on its success in strengthening the focus on customs relations between the EU and its neighbours. Today, we expect the Council of Ministers to take the final steps on the Pan Euro Med Convention and endorse the next ones for enlarging the Conventions on a common transit procedure.

Let me also thank the Hungarian presidency for hosting this seminar. It is for us a welcome opportunity to find concrete ways of improving the cooperation of customs authorities along the Eastern border of the EU.

What is the policy environment for our discussions today? We all experience the impact of globalisation on supply chains and the opportunities and challenges that come with it. We follow the developments and trends in political association, democratic institutions and regional economic integration through trade and investment. These issues are indeed important for geopolitical stability as well as for economic and social progress throughout the region.

In this context, with so many experts gathered, I believe we can have a frank and constructive debate on the problems that need to be solved.

THE PROBLEMS WE FACE

What are the problems I am referring to? I hear about them regularly from a wide range of people – ministers, experts, traders, journalists, family, friends and citizens. Let me highlight four problems of them:

Firstly, I am very concerned about fraud and illicit trade. Estimates show that in some of the border countries of the EU, up to half the cigarettes smoked are contraband. Smugglers of tobacco, alcohol, fuel and other goods make incredible profits at the expense of honest tax payers. In addition, it is widely known that smuggled goods – in particular tobacco products - are transiting and finally reaching Western markets.

The magnitude of this problem is dramatic, and fighting this phenomenon is a huge challenge. I sense that our Eastern neighbours are increasingly sensitive to it as well. Similarly, I know that our neighbours are concerned about other specific types of fraud, which makes the fight against fraud a joint interest.

Secondly, many of you will know about the practical problems stemming from border congestion. The waiting time for lorries that are queuing at border crossing points for many hours or days, is costly to businesses and in the end to the consumers on both sides of the border.

The third problem I hear about is the security risks we face in the globalised supply chains. We all remember the incidents at the end of October last year, when printer cartridges of explosives shipped from Yemen were intercepted in Europe on their way to the US. When looking for practical ways to manage security risks related to the trade in goods, the spotlight falls on customs.

Finally, there is the problem of counterfeit and substandard goods reaching the EU market. The flow of such goods has harmful effects on European consumers and businesses, and a negative impact on innovation, growth, and jobs. In 2009, EU customs took action in more than 43,000 cases, detaining 118 million articles at the external EU border. The figures for 2010 are likely to be even higher. And there is nothing suggesting that the trade in IPR infringing goods is diminishing. Consumers and businesses of our Eastern neighbours must be equally concerned.

Customs is the interface between internal and external markets. It has a critical role to play in increasing the efficiency of exchanges and supporting modernisation, integration and convergence. As such it is an integral part of our economic and trade dialogue.

An open and frank dialogue is even more beneficial, when it is well-structured. As with all types of governance in our globalised age, we must look beyond what is dictated by self-interest. If we agree on strategic challenges and develop a shared perception of risks, we can put in place coherent frameworks for managing them.

I am, therefore, encouraging you to discuss how we can recast our customs cooperation around three broad priorities:

'Safe and fluid trade lanes'

'Risk management and the fight against fraud', and

Investing in customs modernisation.

Let me say a few words about each.

SAFE AND FLUID TRADE LANES

Our aim in developing 'Safe and fluid trade lanes' is to maximise trade facilitation on the basis of operator reliability and compliance in line with the WCO SAFE Framework. The EU has a system of Authorised Economic Operators who are committed to customs compliance. We could consider introducing modern, faster procedures and IT technologies so that customs can be strong yet flexible links in the supply chain.

We have to get the incentives right, so traders feel the benefits of compliance. I believe that this quid pro quo approach should be reflected in our customs cooperation as well. The benefits of cooperation are only realised if there is a strong shared commitment to implement what has been agreed. Customs policy makers and administrations have to be as reliable and compliant as the most trusted traders. Only then will they have earned their benefits.

The creation of fast lanes for reliable traders could be combined with coordinated border management and improvements of cross border infrastructures. Where appropriate, joint controls at border posts could be foreseen. The geographical extension of the European Common Transit Convention is also an important component.

As our cooperation deepens, I would expect from good partner administrations that they share information in advance, giving traders an early warning, when disruptions in the trade flows can be foreseen.

RISK MANAGEMENT AND THE FIGHT AGAINST FRAUD

Maximising trade facilitation has to go hand-in-hand with strengthening 'Risk management and the fight against fraud'. This would be the second strategic priority.

Customs cannot control all goods crossing the border. We have to rely on effective risk management systems to detect and stop illegitimate trade. This includes the main forms of customs fraud, from smuggling to valuation fraud, which in turn have harmful effects on national budgets. Such systems also enable identification of security and safety risks and IPR violations.

Risk management requires information. Let us exchange experiences on pre-arrival information provided by traders. We should discuss how to improve risk analysis and the effectiveness of controls through exchange of information between customs administrations. This question was discussed at an EU seminar held in Vilnius in November 2010, and it is now time to become concrete.

I would suggest that we reflect on the possibility of defining specific objectives and conditions for implementing advance exchanges of customs information between the EU and partner countries. In this context, we should consider using a specific legal instrument, perhaps a regional convention, to serve this purpose. The focus should be on enhancing the efficiency and effectiveness of customs controls while at the same time securing confidentiality and data protection.

CIGARETTE SMUGGLING – A CRUCIAL CHALLENGE

Let me now return to a specific challenge in the area of risk management and the fight against fraud, namely cigarette smuggling.

The growth of the illicit tobacco market in the EU is a matter of great concern. Trade in contraband and counterfeit tobacco products results in annual losses of approximately 10 billion euro to the budgets of the EU and its Member States. In addition, cigarette smuggling undermines public health initiatives aimed at curbing smoking.

This is not solely an EU problem. The fight against smuggling requires urgent and streamlined actions from the European Commission, EU Member States and neighbouring countries. For all these reasons I have asked my services to prepare an Eastern Border Anti-Smuggling Action Plan before this summer.

The objective is three-fold: Firstly, we will present a clear overview of existing measures and actions which contribute to our joint efforts to fight against smuggling. Secondly, we will identify gaps and loopholes in our activities and infrastructures. And, thirdly, we will identify and implement measures to strengthen the fight against smuggling in the short and medium term.

We envisage consulting the Member States on this Action Plan soon, hopefully later this month. I call on everyone to express their views on the draft Action Plan and to propose additional possible actions.

For example, it appears that Hungary has recently made great efforts to combat cigarettes smuggling from Ukraine. I am told they successfully reduced illicit trade from more than 30% to less than 5%. Their experience clearly demonstrates the benefits of improving co-operation between the different authorities in charge: Customs, finance guards, border guards and police.

There is also good reasons to involve the industry and other stakeholders, who have legitimate interests in curbing illicit tobacco.

I am encouraged when I see that some of our neighbouring countries are starting to respond to the call for approximation of excise duties. Our policy objectives – raising revenue as well as addressing health concerns - are very similar, I am sure, and I see great benefits in moving forward in a coordinated way.

Well-functioning operational working relations are particularly important where large-scale smuggling takes place. I am pleased that the EU has already established cooperative relationships via mutual administrative assistance agreements with most of the countries represented here today.

Let me add that technical assistance could be provided, if requested by any Member State, and specific support could be made available under the Customs or Fiscalis 2013 programme.

INVESTING IN CUSTOMS MODERNISATION

The third strategic priority in our cooperation should be to increase investment in customs modernisation. The benefits of customs modernisation are obvious: similar legislation and procedures across borders and predictable implementation offer a more efficient environment for economic operators. At the same time, modernised customs services are better placed to face the challenges involved in tackling illegitimate trade.

The aim is to promote the convergence of legislation and procedures and to support the development of reform strategies. Our toolbox includes capacity-building measures and engaging in a close dialogue on how to define new rules.

The EU has engaged into a long-term process of modernising its entire customs system, which involves major legislative, organisational and technical changes. The overall aim is to develop a more efficient system. It should strengthen the security of EU borders and the protection of citizens and companies from illegitimate international trade. At the same time, it should actively promote competition and speed up legitimate trade. We are ready to share our experiences with our neighbours.

In our discussions we need to take account of new dynamics. The creation of the Customs Union between Russia, Belarus and Kazakhstan may open new challenges and prospects for customs cooperation. More generally, relations with neighbouring countries are nurtured and developed through the EU Eastern Partnership programme and the Deep and Comprehensive Free Trade Area negotiations between the EU and several neighbours. I see close cooperation in the areas of customs and tax as a key pre-condition for a mature relationship among trading partners. The cooperation needs to work well in practice, not in theory or on paper. Only then will we see smoothly flowing trade, effective management of risks, and a real impact on fraud.

I am confident that this seminar provides the right setting to discuss how to recast our customs cooperation along a strategic approach, in line with international standards, and how to implement this approach to our mutual benefit.

Let me recall the great importance I attach to making progress in this area. Progress will be measured by impact and results. It will require continued commitment and follow-up. For this reason, I am very pleased that the current Hungarian presidency and the incoming Polish presidency are working in tandem.

I thank you for your attention, and wish you a stimulating and productive debate.